Murphy Oil Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. The filing also reports fourth-quarter results. Murphy Oil is an exploration and production company, with producing operations principally in the United States and Canada and exploration interests in other countries. Financial amounts below are in U.S. dollars; annual results generally include the noncontrolling interest in MP Gulf of Mexico unless stated otherwise.
Financial and operating results
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue from customers | $3.449 billion | $4.220 billion |
| Revenue from production | $3.377 billion | $4.038 billion |
| Operating income from continuing operations | $1.042 billion | $1.587 billion |
| Income from continuing operations | $725.2 million | $1.141 billion |
| Net income attributable to Murphy | $661.6 million | $965.0 million |
| Diluted earnings per share | $4.22 | $6.13 |
| Net cash from continuing operating activities | $1.749 billion | $2.180 billion |
| Capital expenditures | $1.138 billion | $1.183 billion |
| Production, including noncontrolling interest | 192,640 BOE/day | 175,156 BOE/day |
Customer revenue declined about 18% and net income attributable to Murphy declined about 31% year over year. Production increased about 10%. Management attributed weaker earnings primarily to lower realized commodity prices and lower revenue, higher lease operating and exploration expenses, partly offset by lower derivative losses, lower other operating expense and lower income tax expense. WTI averaged $77.62 per barrel in 2023 versus $94.23 in 2022; NYMEX natural gas averaged $2.53/MMBTU versus $6.38.
Margins: The filing does not present a headline operating-margin measure. Based on reported consolidated operating income and total revenues and other income, the approximate operating margin was 30% in 2023 versus 40% in 2022; this is a simple calculation from the reported figures, not a company-defined non-GAAP metric. Adjusted EBITDA attributable to Murphy, a non-GAAP measure, was $1.901 billion versus $2.096 billion; adjusted net income attributable to Murphy was $708.7 million versus $880.8 million.
Fourth quarter: Revenue from customer contracts was $842.2 million; income from continuing operations was $140.5 million; net income attributable to Murphy was $116.4 million; and diluted earnings per share were $0.75. The quarterly dividend was $0.275 per share.
Cash, debt and liquidity
- Year-end cash and cash equivalents were $317.1 million. Total liquidity was approximately $1.1 billion, including $796.2 million available under the $800 million revolving credit facility, which expires in November 2027. No RCF borrowings were outstanding; the company reported compliance with its covenants.
- Long-term debt was $1.328 billion, down approximately $494 million from year-end 2022. Murphy retired approximately $498 million of debt during 2023. Its fixed-rate notes had a 6.2% weighted-average coupon and 8.1-year weighted-average maturity.
- Current assets were $752.2 million and current liabilities were $846.5 million, leaving a $94.3 million net working capital deficit, improved from a $285.5 million deficit a year earlier.
- Operating cash flow fell about 20% to $1.749 billion. Investing activities used $998.7 million and financing activities used $923.7 million; cash declined by $174.9 million during the year.
- Cash dividends paid were $171.0 million, or $1.10 per share. The company repurchased 3.4 million shares for $150.0 million excluding excise taxes and fees; $450 million remained under its $600 million authorization at year-end.
Material changes and business developments
- Proved reserves increased from 715.4 to 739.5 million BOE, a 134% replacement ratio. Extensions and discoveries added 112.6 million BOE, offset by 70.4 million BOE of production, negative revisions and property sales. Proved undeveloped reserves were 314.0 million BOE, or 42% of total proved reserves.
- Murphy sanctioned the Lac Da Vang development in Vietnam, signed production-sharing contracts for five offshore Côte d’Ivoire blocks, and reported a commercial Longclaw discovery in the Gulf of Mexico. Two other Gulf exploration wells were non-commercial.
- Terra Nova production in offshore Canada restarted in late November 2023 after completion of its asset-life-extension project; management expected production to ramp up into 2024.
- The company sold certain Kaybob Duvernay interests and all of its Placid Montney interest for net proceeds of C$139 million. It also acquired an 8% interest in the Zephyrus Gulf of Mexico discovery for approximately $13 million.
- 2023 exploration expense rose to $234.8 million from $133.1 million, including dry-hole and previously suspended well costs, seismic purchases in Côte d’Ivoire, and the Mexico Cholula well write-off. No asset impairments were recorded in 2023 or 2022.
Outlook, risks and contingencies
- For 2024, management expects average production of 187,100–195,100 BOE/day, including 7,100 BOE/day attributable to noncontrolling interest, and capital expenditures of $920 million–$1.020 billion excluding noncontrolling interest. The 2024 production mix is expected to be approximately 59% liquids.
- The 2024 exploration budget is $120 million, including two operated wells in Vietnam and two non-operated Gulf of Mexico wells. Murphy expects to spend approximately $450 million–$700 million per year over the next three years converting proved undeveloped reserves to developed reserves.
- As of February 21, 2024, forward curves cited in the filing were $75.63/bbl for WTI and $2.41/MMBTU for NYMEX gas for 2024. The company had entered fixed-price forward sales for certain Canadian natural gas volumes. Management cautioned that weaker commodity prices could reduce cash flow and lead to capital-spending cuts or credit-facility borrowings.
- Principal risks include oil and gas price volatility, reserve-estimation uncertainty, exploration failures, offshore hazards and severe weather, inflation and service-cost pressure, reliance on third-party infrastructure and joint-venture partners, foreign exchange, cybersecurity, and changing environmental and climate regulation. The company notes the EPA’s 2023 methane rule and potential compliance costs.
- Proved reserves are estimates subject to price, cost, performance and regulatory assumptions; approximately 96.6% were audited by third parties, with audits within the stated ±10% tolerance. The standardized measure of discounted future net cash flows fell to $6.853 billion from $11.813 billion, principally reflecting lower prices and production costs assumptions; Murphy cautions this measure is not market value.
- Asset retirement obligations were $914.8 million at year-end. The company reported $200.6 million of outstanding letters of credit and contractual obligations totaling $6.023 billion, including leases, capital commitments and other long-term liabilities. Management did not expect pending legal and environmental matters to have a material adverse effect based on information then available.
- KPMG issued an unqualified audit opinion on the financial statements and internal control over financial reporting. Estimated oil and gas reserves used in depletion were identified as a critical audit matter.
Important facts for investors to verify
- Whether 2024 production and capital-spending guidance is achieved, and how the Terra Nova ramp-up and Vietnam development affect results.
- Exposure of revenue, cash flow and reserve estimates to commodity prices, including the scale and duration of the Canadian natural-gas forward sales.
- Reserve replacement quality, the development schedule and funding needs for the 314.0 million BOE of proved undeveloped reserves.
- Debt repayment, liquidity and shareholder-return plans, including future repurchases and dividends relative to operating cash flow and capital spending.
- Potential changes in decommissioning, environmental, methane-emissions and other regulatory costs, as well as any material developments in legal or environmental contingencies.